Is The Fed Rate Hike Cycle Nearing Its Peak?

Welcome to a new trading week and our last one before the summer holiday break.

Top even risk is Wednesday’s FOMC rate decision which where Fed Chairman Jerome Powell and his colleagues are expected to raise rates by another 75bp after raising rates by 75bp in June. Powell has said following the Fed’s last 75bp hike that it is an unusually large one, he does not expect rate hike moves of that size to be common. However, the market is now dealing with the debate of a 75bp or 100bp hike and the U.S. dollar’s reaction to it. According to economists, there is no appetite for a full-point increase at any time during this rate cycle.

From a seasonal perspective, the last week of July historically exhibits lower volatility and volume, which is why extraordinary large market moves might be missing.

Looking further ahead, a survey of 44 economists forecast the Fed will raise rates by another 25bp in early 2023, reaching a peak of 3.75 percent before pausing and starting to cut rates before the end of the year.

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